The subject of arbitrage Taking advantage of price differences in at least two different markets by buying the same security at the cheaper price and immediately selling it at the higher price. is a bit confusing for the new investor, but you will undoubtedly hear the term as you start reading more and more about Read More…
Investor sentiment, sometimes also called market sentiment, typically relates to the stock market’s “attitude” towards specific securities, industries, or overall market conditions (bullish, bearish, or neutral. While of limited importance to a buy-and-hold investor, investor sentiment can be an effective tool if you decide to live in the fast lane by adopting a day or Read More…
Insider transactions and trading has become a sensitive topic in recent years. Most thoughts tend to be negative (images of Martha Stewart in prison mayspring to mind), giving the impression that all insider transactions are illegal or unethical. Not true. Technically, insider transactions involve an employee of a company trading his own company’s stock or Read More…
During the height of the dot.com explosion, a popular strategy – growth at any price – became the rallying cry for many investors. After the bubble burst, a more conservative strategy known as growth at a reasonable price, or GARP, became and remains a popular investing action plan. Paying a high price for a rapidly Read More…
The most popular investment strategy preached by brokers, fund managers and even famous investors like Warren Buffet is “buy and hold.” In its most basic form, this strategy believes that you should only buy stocks of solid, well managed companies that will deliver profits for decades to come; furthermore, that you should hold onto these Read More…
Penny stocks are often popular with the newer and smaller investor. These investments are classically defined as any stock that sells for less than $5.00, traded outside the major exchanges, and often traded on the OTCBB (Over-the-Counter Bulletin Board Stocks that trade on the NASD with tickers that end in an “.OB”, but have no Read More…
Swing trading Identifying “channels” or “tunnels” of price movements on a stock’s chart and then buying when the price gets to the bottom of the channel and selling when it gets to the top, usually over a few days. is identifying “channels” or “tunnels” of price movements on a stock’s chart and then buying when Read More…
The buying and selling of investments (stocks, futures, stock options, commodities, currencies, etc.) within the same trading day, so that all positions are closed before the end of each day, is called day trading The buying and selling investments (stocks, futures, stock options, commodities, currencies, etc.) within the same trading day, so that all positions Read More…
Your first order of business in looking at current investing trends is to see if the hot trend is worthy and justifiable, or whether it is just a mania leading to a bubble. While it can be profitable to ride the bubble as it is getting started, it is extremely important to make the leap Read More…
Alright, everyone, take a deep breath and relax. You’ve just been assaulted with a lot of information. Don’t panic. As you view real-world examples of these charts, you’ll become more familiar and comfortable with their interpretations. This and other sites will give you all the additional information you need to continue your current journey and prepare Read More…
In the 1980s, John Bollinger developed a new technical analysis tool to measure the highs and lows of a security price relative to previous trade data. These “trading bands” help investors track and analyze the “bandwidth” of stock prices over a period. The object of Bollinger Bands is to identify a “relative” definition of high Read More…
Support Support in a stock chart forms at an area where the stock’s price seems to not want to move lower. This is due to the presence of buyers at this lower target price. and resistance Resistance in a stock chart forms at an area where the stock’s price seems to not want to move Read More…
RSI is the acronym for “Relative Strength Index.” The RSI was created in 1978 by J. Welles Wilder to compare the strength and magnitude of a stock’s gains and losses in recent time periods. The simple formula converts this winning and losing data into a number ranging from 0 to 100. To keep the analysis Read More…
Moving averages The Moving Average is a line on a chart that smooths out the recent price history by calculating the average price over 30 or 60 days (or any number of days). are among the most popular and – important for the newer investor – easy to use and understand trading “tools” available to Read More…
Often called the most accomplished mathematician of the Middle Ages, Leonardo Fibonacci is best known for his “numbers”. It is a sequence starting with 0 and 1, after which every third number is the sum of the previous two numbers. A Fibonacci “sequence” is 0,1,1,2,3,5,8, etc. The Fibonacci “ratios” are 23.6%, 38.2%, 50%, 61.8%, and Read More…
This is the acronym for “ moving average The Moving Average is a line on a chart that smooths out the recent price history by calculating the average price over 30 or 60 days (or any number of days). convergence/divergence.” Got it? OK, here’s the simple explanation. This graph shows the difference between a fast- Read More…
Candlesticks are a type of stock chart developed in Japan. Instead of lines, a vertical block, which looks like a candlestick, is used to symbolize a day or week’s worth of price action. Candlestick charts track price movements of a security over some time period. An interesting combination of a line and a bar chart, Read More…
A wedge in the financial universe describes a triangular shape formed by the intersection of two trendlines, which form the apex. The wedge need not be upward facing and can easily be an inverted triangle. The “falling wedge” is often called a “flag” since it more resembles a pointed flag more than a typical triangle. Read More…
You’re probably aware that trendlines are important to all of your research on potential purchases or sales of securities. Base numbers are equally important to understand the true meaning of any trends you identify. Depending on the type of chart you are viewing, you’ll also want to establish a solid, unbroken trendline of your own Read More…
A double bottom chart will look like a “W.” It indicates that the stock hit bottom market price, had a quick – albeit brief – uptick, and decreased again to turn a “V” shape into a “W.” The two reverse peaks should be around the same floor price and the time period should be similar Read More…
A breakoutA breakout occurs when a stock’s price moves up quickly above former resistance levels. occurs when market prices move through and continue through former highs/lows that had formed ceilings or floors in the past. Commonly called levels of “ support Support in a stock chart forms at an area where the stock’s price seems Read More…
Don’t you love the terminology that pictorially associates these charts with their graphic representations? The Head and Shoulders is an extremely popular pattern among investors because it’s one of the most reliable of all chart formations. It also appears to be an easy one to spot. Novice investors often make the mistake of seeing Head Read More…
The Cup with a Handle pattern is one of the best-known stock chart patterns. The Cup patterns follow outlines that simulate an inverted semi-circle (U-shape), indicating a price fall, a bottoming out, and a price rise. Afterwards, there tends to be a rather unstable period marked by a sell-off generated by investors who acquired the Read More…
This chapter will expose you to the most common charts available. Their names and meanings are important to your continuing education and the number of tools you carry in your toolbox in order to evaluate stocks. Understand that it will take some time before you are comfortable reading and interpreting many of these charts. Don’t Read More…
Everyone knows that for a company to become and remain successful, it must pay attention to its competition. When analyzing a stock, investors must also do some competitive analysis. Companies do not operate in a vacuum. They are in constant competition for consumer and investment dollars. To make the best investment decisions, you need to Read More…
A company with well-respected and reliable products that have been accepted by the consumer market is often a valuable investment. How many rolls of Charmin toilet paper have you purchased in your lifetime? How many tubes of Colgate toothpaste? How many boxes of Tide laundry detergent? How many gallons of BP gas have you pumped Read More…
As a potential investor, you need to know about the quality of the management team, the continuity of the management team, and projected future stability of the management team. After all, the performance of any organization is ultimately related to the leadership and direction provided by its leaders. History is full of examples of CEOs Read More…
In financial accounting, a balance sheet or statement of financial position is a summary of a person’s or organization’s balances. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a snapshot of a company’s financial condition. Of Read More…
When you’re considering buying or selling a stock, it is just as important to look at future expectations as historical performance. We can read all of the 10-KsThe annual SEC filing by public companies that includes their audited Income Statement, Balance Sheet, Cash Flow Statement and other detailed notes about the companies financial and operating Read More…
OK, so we have discussed sales, operating income, EBITDA Earnings before interest, taxes, depreciation, and amortization. , and net income. Which is the best measure of a company? The answer, unfortunately, is NONE OF THE ABOVE! If Stock A and Stock B are in the exact same industry, have the exact same revenues, costs, EBITDA Read More…
Once you have understood a company’s profitability, take a look at the Statement of Cash Flows because this is the second most important element of Fundamental Analysis and it frequently needs more than a cursory examination. Many experts strongly contend that good cash flow is more important than earnings to ensure company viability for the Read More…
A company’s net income is one of the most critical pieces of data you can pull out of the financial statements because it is this profit that generates cash and cash drives value. A company can produce the most innovative products, be in an industry with minimal competition, and have superior management, but the company Read More…
You have to know how to read an Income Statement if you want to understand Fundamental analysis. An Income Statement follows this format: Revenue/Sales – The “top line” number on an Income Statement is usually the revenue/sales number that indicates the total sales of the company. This is the total cash register receipts of all Read More…
The first place to start analyzing a company is to go straight to the source and review the financial information that the company is publishing about itself. In previous chapters we talked about IPOs and what it takes to be a public company in the U.S. To remain a public company in good standing with Read More…
Exit Strategies Are Designed to Protect Your Value Rule #7 – Have an Exit Plan and Target for Every Stock Few experienced traders ever invest in any stock without having an exit strategy. In its simplest form, an exit strategy is a plan to get you out of something you’re in. In the investment universe, Read More…
Summary You’ve made your first purchases and now you have some idea what to do with them. While you’re not yet an expert, you should now have enough information to create a basic holding strategy and an exit plan. You understand that you should ride your winners and dump your losers. Having a sensible exit Read More…
Identify Market Tops to Maximize Profits Market tops are subjective opinions that often quickly become fact, for better or worse. How can you possibly identify a market top? Here are some suggestions that many experts believe will help you identify market tops. Closely watch the Dow Jones Industrial Average, NASDAQ Composite, and S&P 500. Pay Read More…
Rule #5 – Know When to Hold’em, Know When to Fold’em Avoid falling in love with any one particular stock as the market can turn on it very quickly. While you may love a particular stock, millions of others may develop a dislike on a moment’s notice. You must be prepared to cut ties with Read More…
Rule #4 – Diversify, diversify, and diversify Reminder: Always diversify your portfolio into at least 10 different stocks. It doesn’t matter if you are starting with $10,000 or $100,000–you’ll have more success if you think big and proceed as though you were a major-league investor. Diversification is important because while one sector of the economy Read More…
Rule #3 – Never, ever, ever lose more than 10% on any single trade. Traders, finance professors, and common sense all say that you should never let one sour apple ruin all of the other apples in your basket! Picking 9 stocks that gain 10% will be a waste of time if your 10th stock Read More…
Rule #2 – Don’t fall in love with your stock purchases – winners OR losers (particularly losers). Remember, you are not a welfare agency, rehab specialist, or air/sea rescue professional. If an investment is going south, sell it – without remorse and move on. Don’t forget, investing is a business, not a hobby or a Read More…
Selling a stock is just as important of an investment decision as buying and you must have a strategy to maximize your profits and minimize your losses. Developing a trading strategy is important to your future investing activities. Even a flawed strategy is better than having no strategy. And trust me, your strategy will always Read More…
Summary It’s time to decide on how you’d like to construct your portfolio. Whether you decide to invest virtual money or real funds, you should now have a basis to create your own thoughtful plan and strategy. Using your virtual portfolio and trading ability, you can test your strategy and “tweak” it, if necessary, to achieve Read More…
Once you get out of the shopping malls, don’t forget to make sure you are diversifying. Buying a shoe company, a hat company, a jean company, a sock company, and a dress company is NOT exactly what we mean by diversificationA way of reducing the risk and variances in your portfolio returns by buying a Read More…
Peter LynchPast portfolio manager of Fidelity Magellan, which became the largest mutual fund in the 1990s., another globally respected investment genius, also embodies a solid – not exotic – investing strategy. After graduating from Boston College (1965), Lynch was hired as an intern at the company that came to be forever linked with his name, Read More…
Investing in “what” you know based on “how much” you know can provide an excellent return and a higher level of comfort. As an example, the legendary investor Warren BuffetChairman and CEO of Berkshire Hathaway, and generally regarded as the greatest buy and hold investor of the last 30 years. has amassed his fortune without Read More…
With so many stocks out there, what does the new investor buy? If you have plenty of time and wish to become an information and opinion junky, you could spend thousands of hours reading all of the newspapers, websites, financial blogs, discussion boards and newsletters out there that cover just about every single one of Read More…
To measure your success of diversifying, several calculations have been developed to provide an indication of how well your portfolio is performing in terms of its variance and its return. There is more than 1 way to get a 10% return. Graph 1 below shows a smooth portfolio increase upwards at a 10% return over Read More…
Risk, reward, and diversificationA way of reducing the risk and variances in your portfolio returns by buying a variety of stocks across different industries, market caps, etc. are the most important concepts to understand before you start your portfolio. They are factors in all investment decisions. You must learn more than the textbook definitions of Read More…
Summary Ok new investor, you should be ready to begin. You can now leave the bleachers, put on a uniform, cross the white lines, and play. Stay focused, positive, and realistic. You might not make the Majors right away, but you can enter the investment world armed with solid knowledge, upon which you can expand Read More…